We came across a bullish thesis on Orthofix Medical Inc (OFIX) on ValueInvestorsClub by aa123. In this article we will summarize the bulls’ thesis on OFIX. Orthofix Medical shares were trading at $14.64 when this thesis was published, vs. closing price of $17.37 on Aug 13.
A medical professional wearing a face mask and a surgical gown performing a spine surgery in a hospital operating room.
Orthofix (NASDAQ: OFIX) is a leading global company specializing in spine and orthopedics. It offers a diverse portfolio that includes biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions, and a top-tier surgical navigation system. The company operates in two primary segments: Global Spine and Global Orthopedics. The Global Spine segment is the largest, generating around $630 million in revenue in 2023. It encompasses several critical businesses: Bone Growth Therapies, Spinal Implants, Enabling Technologies, and Biologics. These businesses provide essential products and services, such as bone growth stimulation devices, spinal surgical implants, image-guided surgical solutions, and advanced bone graft substitutes. The Global Orthopedics segment, which generated $115 million in 2023, focuses on products and solutions for limb deformity correction, trauma, pediatrics, and foot and ankle procedures.
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Orthofix’s unique position in the industry comes from its comprehensive portfolio, which addresses critical needs in the spine and orthopedics markets. The company serves a wide range of end markets, including hospitals, surgery centers, and healthcare providers, with top clients relying on its specialized products and innovative technologies.
The investment opportunity in Orthofix has become particularly compelling due to recent developments that have significantly impacted its stock price. In September 2023, the company’s shares dropped more than 40% following the sudden firing of its CEO, CFO, and Chief Legal Officer for cause. This unusual and drastic action, occurring during the integration of Orthofix’s merger with SeaSpine Holdings, a high-growth but unprofitable spinal implant business, understandably spooked investors.
Before the merger, Orthofix was a profitable business, with a healthy 12x forward EBITDA and a share price that once reached as high as $60. However, the board’s decision to merge with SeaSpine—arguably at the expense of accepting a $24 acquisition offer from a private equity firm—was seen as a misstep. The use of undervalued Orthofix shares to overpay for SeaSpine, coupled with the integration challenges, led to a significant decline in the company’s profitability and share price.
However, Orthofix’s outlook has improved with the appointment of new leadership. The company’s new CEO, Massimo Calafiore, brings valuable experience from his previous role at LimaCorporate S.p.A., where he successfully turned around the company and later sold it to Enovis Corporation. The new CFO, Julie Andrews, also has a strong track record, having played a key role in creating value at Wright Medical, which was later acquired by Stryker. Their leadership, along with a refreshed board, is expected to drive significant operational improvements and unlock value within Orthofix’s portfolio.
Orthofix has several businesses with substantial value, such as its Bone Growth Therapies (BGT) business, which holds a 40% market share, generates around $200 million in sales, and boasts EBITDA margins exceeding 40%. The company’s biologics business, with its exclusive partnership with MTF Biologics, is another high-margin, capital-light business that contributes significantly to its profitability. The Global Orthopedics business, though historically mismanaged, has considerable potential and is seen as another hidden gem within the portfolio.
The company’s valuation is currently depressed, trading at approximately 0.7x 2026 estimated revenue of $905 million. This presents an attractive opportunity, given the portfolio of businesses and technologies within Orthofix. The new management team is expected to drive value through operational improvements, such as rightsizing the cost structure, restructuring the spine implants business, and improving free cash flow generation.
As Orthofix executes its turnaround strategy, the stock is set up well for investors over the next 2-3 years, with potential for significant upside as the company realizes its long-term targets and re-rates closer to its intrinsic value.
OFIX is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held OFIX at the end of the first quarter which was 29 in the previous quarter. While we acknowledge the potential of OFIX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as OFIX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.